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Wissmann: Automotive year 2014 to bring upturn

Slight increase expected in Western Europe most growth in China and USA

Statement delivered by Matthias Wissmann, President of the German Association of the Automotive Industry (VDA), at the VDA’s annual press conference at 11.30 h on 3 Dec. 2013

Ladies and Gentlemen,
it is my pleasure to welcome you most cordially to the VDA’s annual press conference. The figures for the first eleven months of this year are now available for Germany. We can therefore already evaluate the automotive year 2013 and outline the prospects for the coming year.

Global passenger car market continues to grow

In a global view, the automotive year 2013 has definitely been a good one: the world passenger car market is climbing by 5 per cent to 72.2 million units. This growth is mostly accounted for by the two major markets, the USA and China. Over 2013 the US market is probably going to expand by 7 per cent to nearly 15.5 million light vehicles. The growth in China comes to 21 per cent, i.e. three times as much. The Chinese passenger car market will reach a volume of 16 million in 2013, making it the largest market for the first time. The German manufacturers can keep up with the high rate of growth there – they have a market share of over 20 per cent.
Western Europe on the other hand is now on the path of slow recovery after several difficult years. Over the year 2013 as a whole, sales of passenger cars will reach 11.4 million, and although this is indeed 3 per cent below last year’s figure a slight upswing has become clearly visible in the second half-year. With the exception of August, each month’s sales have been up on the previous year. In total, however, this will not fully compensate for the weak first half-year.
In 2013 the Japanese market will shrink somewhat, to nearly 4.4 million passenger cars. The Russian market is not showing any dynamism this year (-7 per cent to just over 2.7 million units), and the situation in India is similar (-9 per cent to just over 2.5 million cars). Sales in Brazil remain a little below last year’s level (-1 per cent to 3.6 million light vehicles).

Domestic passenger car market still sluggish in 2013

As expected, the domestic passenger car market has remained sluggish in 2013. New car registrations up to November totalled 2.74 million, a reduction of 5 per cent. Yet the situation has improved over the second half-year. From January to June, new registrations were still 8 per cent down on the 2012 value, whereas from July to November the drop was only 1 per cent. In November 254,700 passenger cars were newly registered (-2 per cent), but when adjusted for the number of working days the figure actually corresponds to a rise of 3 per cent. This shows that the German market is continuing its slow stabilisation. Over the complete year new registrations will total 2.93 million, thus remaining less than the volume seen last year (-5 per cent). It is welcome that the German manufacturers’ domestic incoming orders have also improved during the second half-year, with a year-on-year increase of 2 per cent (1st half-year: -4 per cent). Here, too, we can see clear stabilisation.

Slight increases in exports and domestic production

Despite the difficult Western European market, exports and domestic production will expand slightly over the year 2013 as a whole. We expect passenger car assembly at German plants to amount to 5.45 million units (+1 per cent), with exports also growing by 1 per cent to 4.18 million new cars. Our strong exports – more than three out of every four cars built here are destined for international markets – ensure rising employment in Germany: the regular workforce comprises 760,000 employees (as of September 2013), so over 10,000 jobs have been created. So far this year (January to September), employment has totalled 754,000. This is 14,000 more than in the same period last year. In the first nine months of 2013, sales by the German automotive industry amounted to 269 billion euro, equalling last year’s high level.

Increasing production abroad

Production abroad has increased again this year. For the entire year we expect production at our international sites to come to 8.7 million units (+6 per cent). Most of the growth is taking place in China and the Mercosur countries. So in 2013 the German automotive industry is producing almost 14.2 million cars around the globe, 5.45 million of them at home.

Suppliers have a 75 per cent share of value-added

Suppliers account for 75 per cent of automotive value-added and their importance is reflected in the VDA. Over 83 per cent of the association’s member companies are suppliers, the majority of them being small and medium-sized family businesses, many of them owner-managed. The suppliers employ 293,000 people in Germany, i.e. 38 per cent of the total workforce in the German automotive industry. In the first nine months of this year, sales by the suppliers totalled 52 billion euro, matching last year’s figure. A good third of all their sales were generated abroad. Exports of suppliers’ products up to September showed a small year-on-year rise (+2 per cent).
The concerns that some companies still had some years ago – for example, that new propulsion technologies would tend to reduce the suppliers’ share within vehicles – have generally proved to be unfounded. However, the competition has continued to intensify. The suppliers are also feeling the effects of internationalisation on the markets, the growing importance of Asia and America. Like the manufacturers, they have their own production in the growth regions. The SMEs are greatly expanding their global presence. A recent study by PwC concluded that exports of components from Germany will also continue to increase.

Commercial vehicle market shows signs of slow recovery

The current market conditions remain challenging for companies in the commercial vehicle sector. From January to November 2013, new registrations of vans in Germany dropped by 4 per cent, to close on 200,000 units. Registrations of new commercial vehicles over 6 t fell by around 6 per cent to 71,300. However, the market appears to have finally got back into gear during recent months. In November domestic sales of commercial vehicles over 6 t showed a year-on-year rise of 13 per cent, following slight growth in the two preceding months. This can be attributed to early purchases in advance of the new Euro VI standard; but also the gradual economic recovery is slowly encouraging investments again. Over the entire year 2013 the German market for heavy commercial vehicles (over 6 t) will reach a volume of 77,000 units (-4 per cent). New registrations of trailers and bodies up to the end of October were still 3 per cent down on last year’s level.
In Western Europe the market for heavy commercial vehicles contracted to 188,600 units in the first tenmonths (-6 per cent). However, we can see that demand is stabilising in countries such as France and Spain. Outside of Europe the trend is upward – similar to that for passenger cars. For 2013 as a whole we expect the commercial vehicle market (over 6 t) in Western Europe to amount to 225,000 units (-4 per cent).

Automotive year 2014: global market set to grow – Western Europe will expand slightly again

In 2014 we expect the total global market for passenger cars to climb to 74.7 million (+3 per cent). With the exception of Japan (-4 per cent), we expect that all the relevant markets will show positive development. China will increase slightly less rapidly than before, but a conservative estimate puts its growth at 7 per cent, so in 2014 this market will break through the 17 million mark (17.1 million passenger cars). The USA will expand by 3 per cent, edging close to the 16 million mark (15.9 million light vehicles). Western Europe will grow again for the first time in four years. We expect 11.6 million units (+2 per cent). That is not a powerful upswing but more of a lateral movement. The new EU countries will recover more quickly, with growth of 7 per cent. Stabilisation will also begin in India (+7 per cent), Russia (+3 per cent) and Brazil (+2 per cent), although India and Russia will not exhaust all their room for expansion.
A comparison of the structure of the world market in 2009 and 2014 reveals the shift very clearly: China will increase from 8.4 million to 17.1 million passenger cars, and the USA from 10.4 to 15.9 million light vehicles, while the Western European market will decrease from 13.7 million to 11.6 million cars. Expressed in market shares, this means that China’s share of the global passenger car market will rise from 15 per cent to 23 per cent over these five years, with the USA increasing from 19 per cent to a good 21 per cent. Western Europe, by contrast, will fall from 25 per cent to just under 16 per cent. However, it would be wrong to regard the current weakness in Western Europe as "normal” for the coming years. In 2009, when the USA was in "crisis mode,” we did not take that view then, either – and were later proven to be correct. We expect the figures to climb in Western Europe too over the coming years, albeit less dynamically. The recovery will take time.

2014: stable exports, domestic production and employment

The strength of the German automotive industry (which takes roughly one fifth of the world passenger car market) is demonstrated by the fact that it has adjusted to the changes and is keeping up with growth on the global passenger car market. The German manufacturers will build nearly 14.7 million passenger cars world-wide in 2014, around 5.47 million of them in Germany. Foreign production will increase by 6 per cent to 9.2 million cars. Exports will remain stable in 2014, close to 4.2 million units. We therefore expect stable employment in Germany’s automotive sector. The domestic passenger car market will total about 3 million new registrations next year, marginally exceeding the level for 2013. However, this will only happen given the right general conditions and continuation of the current recovery.

CO2 Regulation: keeping a balance between ecology and economy

To prevent any misunderstandings: we recognise our obligation concerning the climate in relation to automobiles, and we are investing billions in the ongoing reduction of CO2 values and thus the consumption of our new vehicles. But the balance between ecology and economy must be preserved. Our progress is shown by the figures from the Federal Motor Transport Authority (KBA): during the first ten months of this year the average CO2 emissions from all newly registered passenger cars in Germany fell by 4 per cent to 136.0 g per km. Vehicles from German group brands achieved a CO2 value of 136.2 grams (-4 per cent) despite having a higher proportion of larger vehicles. This corresponds to consumption of only 5.5 litres to travel 100 km.
We already have 585 models on offer requiring less than 5 litres of fuel to cover 100 kilometres. Two years ago we did not even have half that number. And what’s more, 62 models from our manufacturers consume less than 4 litres.
The European CO2 Regulation for 2020 presents huge challenges for the European automotive industry. The flexibilisation of super credits and a mild phase-in are taking this plan a step in the right direction. The efforts on the part of some Member States and MEPs to achieve a better balance between ecology and economy have brought some improvement compared to the European Commission’s original draft.
The new draft, however, still does not change the fact that the European CO2 Regulation provides little incentive for innovations. Above all the promotion of alternative drive trains, especially electric mobility, through super credits has very limited overall application. More impetus could have been created in this respect. And even with the compromise, Europe has the strictest CO2 target anywhere in the world, at 95 grams. The target for 2020 is only 121 grams in the USA, in China it is 117 grams, and in Japan it is 105 grams. The 95 gram level represents fuel consumption of less than 4 litres over 100 kilometres. This target is extremely ambitious and cannot be achieved with classical drive trains alone. It demands a reduction of 35 grams in the period from 2015 to 2020.
No other car-related topic has aroused the media in recent years as much as CO2 reduction. But we should put things into perspective. According to information from the EU, CO2 emissions from passenger cars make up 12 per cent of all anthropogenic CO2 emissions in Europe. Buildings account for a much larger proportion. Most recently Franz Fehrenbach, chairman of the supervisory board of Bosch, expressed it in these words: "Yet boilers do not feature in the debate, while cars on the other hand, clearly visible to everybody, are regarded as the number one driver of climate change." All of us – and that includes the European Commission – should keep in mind that the current debate on CO2 and the climate is limited to a small portion of emissions. In Europe there is still no real balance between climate action and reasonable industrial policy.

Electric mobility catching on

Encouraging signs can be seen in the field of electric mobility – it is catching on more and more all the time. By the end of 2014, German manufacturers will have launched 16 series models with electric drive onto the market. From January to October this year, 6,200 new electric passenger cars (incl. plug-ins) were registered in Germany, which is a rise of 81 per cent. And more than three quarters of them are purely electric vehicles (excluding plug-in hybrids).

Maintain balance between welfare state and competitiveness

After a generally satisfactory automotive year 2013, we are confident about the prospects for the new one. The year 2014 offers opportunities. Of course, market estimates depend on increasing financial stability in Europe and the general business conditions in Germany being more oriented to competitiveness.
This is because we are definitely facing some considerable challenges. For instance, the coalition agreement must result in stable government work – a stable majority is not everything. It is right that the new coalition intends to continue on the path to stabilisation of the euro in its European policy. We welcome the fact that at least tax burdens are not going to increase and that German industry is being given fundamental importance. However, this on its own is not sufficient for leading our country into a robust economic future.
One particularly critical aspect is the costly expansion of the welfare state, which in its wake will make Germany less competitive internationally. As an industrial location, Germany depends on affordable energy whose price must always be seen in international comparison. The coalition agreement does not reduce the energy costs to the automotive industry, but does intend to limit the rise in costs.
The new German Government is right to attach fresh importance to the transport infrastructure. However, the additional federal funding in the agreement for the overall parliamentary session is insufficient. Extending the truck toll to all national roads will burden domestic transport companies most of all, thus making logistics more expensive in Germany. Furthermore, the burdens arising from a toll for passenger cars are a cause for concern – and have a paper-thin basis.
We note with concern that proven and important instruments are to be restricted on the labour market. The flexibility that has helped Germany and its workforce considerably over recent years must not be replaced with rigid regulations. The work of the Government should be – within the coalition agreement – to keep a balance between expanding the welfare state and improving Germany’s industrial competitiveness.

Germany’s exports depend on
free markets – concern about protectionism

I wish to draw attention to one particular point which is of crucial and growing significance to Germany as an automotive location and employment here: a country that exports three out of four cars it produces depends on free markets both for investments and for exports. We observe with great concern the increasing protectionism around the world. A recent study by the European Commission lists around 150 new trade barriers that have been introduced in the last year. Only 18 measures have been removed. Since 2008, when records started, almost 700 new measures have been identified. Most of them focus on the automotive industry. The VDA is working intensively to promote fair market access, and this includes the elimination of both tariff and non-tariff trade barriers.
The agreement currently being negotiated between the EU and the USA is of strategic importance. It concentrates on removing regulatory obstacles. The removal of customs duties on both sides of the Atlantic could save 1 billion euro every year. The plan is to conclude the agreement within two years if at all possible. However, there must also be substantive results – a challenge and an opportunity that we should use.

Summary

Ladies and Gentlemen, may I briefly summarise:
-       A satisfactory automotive year 2013 is drawing to a close.
-       We are optimistic about the automotive year 2014 – given the right political conditions.
-       China and the USA will continue to grow.
-       Europe will show a slight positive development again after four years.
-       The German automotive industry wishes to continue participating in world-wide growth.
-       Production, exports and employment will remain stable in Germany in 2014 – if the general conditions are right and the companies are not subjected to further increases in energy costs or additional taxes and levies.
-       Foreign production will continue to expand. This means that Germany will face tougher competition.
-       The European CO2 Regulation unfortunately makes too little use of the options for greater flexibility.
-       An intelligent CO2 Regulation must stimulate innovations, not strangle them.
-       Germany’s exports depend on free markets.
-       We note with concern the increasing protectionism in many countries – and recognise the enormous opportunities that a free trade agreement between the USA and Europe can offer.

       
   November 2013 Januar - November 2013 
 Passenger cars *)Volume± in % Volume± in % 
       
       
  New registrations254.700 -2     2.737.200 -5     
    of which    
      German makes incl. group makes188.100 -2     1.971.600 -3     
      Foreign makes66.600 -2     765.500 -9     
       
  Exports409.800 12     3.907.200 1     
  Production539.600 12     5.088.800 1     
       
 *) Estimate    
First publication: 03.12.2013 Last modified: 10.12.2013